Interest Rates and Present Values
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(See attached file for full problem description)
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Calculating Interest Rates (Example)
How do you determine the annual interest rate?
Present Values Future Values Time Period
_____________________________________________________
100 115.76 3-years
200 262.16 4-years
100 110.41 5-years
Coca-Cola (Example)
In 1995 coca-cola enterprisees neede to borrow about a quater of a billion dollars for 25-years. It did so by selling IOUs, each of which simply promised to pay the holder $1,000 at the end of 25-years. The market interest at the time was 8.53-percent. How much would you have been prepared to pay for one of the company's IOUs?
PV=$1,000 X ___1_____
(1.0853)25
Can you please explain this equation step by step? Also, were does the 25 fit in??
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(See attached file for full problem description)
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Solution Summary
The solution explains how to calculate the implied interest rate given the present value, future value and the time period
Solution Preview
Please see the answer and explanantions in the attached file
COMMENT FROM STUDENT:
Great, but I still need to know how you utilize the 25 ...
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